Monday, June 6, 2016

Kimball's Reading List on Negative Interest Rates

Stigliz provides a series of arguments against low interest rates here.

My framing of monetary institutions and interest rates is far different from Stiglitz and Kimball. In my view, their framing is too much dependent on the current fashions of central bankers--setting "the" interest rate to manipulate economic growth/unemployment and inflation. Even so, Kimball hits the right notes--twisted just the right way, his arguments can be seen as being about what is needed to maintain monetary equilibrium. Stiglitz just goes deeper and deeper into is dirigisme. Keep interest rates high so that firms won't substitute capital for labor? Wow.

In my view, if the supply of short and safe assets is low and the demand is high, the prices of those assets should be high and the yields low. If negative nominal yields are necessary to clear those markets, then negative nominal yields are best.